IFRS 4: Comprehensive Guide for Insurance Companies
IFRS 4 - Insurance Contracts

Q1: What is IFRS 4?

IFRS 4 is an International Financial Reporting Standard that provides guidance on accounting for insurance contracts. It outlines how insurance companies should recognize, measure, present, and disclose information about their insurance contracts in their financial statements.

Q2: What is an insurance contract?

An insurance contract is a contract under which one party (the insurer) agrees to compensate another party (the policyholder) for specified losses, damages, or liabilities arising from specified events (such as accidents, illnesses, or deaths) in exchange for a premium.

Q3: How should insurance contracts be accounted for under IFRS 4?

Under IFRS 4, an insurance company should:

  • Determine whether an arrangement is an insurance contract or not.
  • Recognize and measure the insurance contracts separately from any other assets and liabilities.
  • Measure the insurance contracts at the higher of their:
  • Fulfillment value, which is the present value of the future cash flows the insurer expects to receive from the contract, plus the present value of the expected cash outflows.
  • Net realizable value, which is the amount the insurer would receive if it were to sell the insurance contracts in an orderly disposal.
  • Recognize changes in the measurement of the insurance contracts in profit or loss or other comprehensive income, depending on whether they relate to insurance revenue or insurance expenses.
  • Disclose information about the insurance contracts, including the nature, amount, timing, and uncertainty of cash flows arising from the contracts, the methods used to measure them, and the sensitivity of the measurements to changes in assumptions.

Q4: Are there any exceptions to the requirements of IFRS 4?

Yes, IFRS 4 allows some temporary exemptions for entities that issue insurance contracts and apply local accounting standards that are not consistent with IFRSs. These exemptions relate to the recognition, measurement, and disclosure of insurance contracts and are intended to enable these entities to adopt IFRSs without disrupting their existing accounting practices. However, these exemptions are only available until a comprehensive standard on insurance contracts is issued.

Q5: What is the status of the comprehensive standard on insurance contracts?

The International Accounting Standards Board (IASB) has issued a new standard on insurance contracts, IFRS 17, which replaces IFRS 4. IFRS 17 establishes principles for the recognition, measurement, presentation, and disclosure of insurance contracts and is effective for annual periods beginning on or after January 1, 2023.

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